Your 867.  Before making any policy commitments in regard to reparations from Japan we need more information concerning the intentions of other countries. These should become clearer when the Far Eastern Commission meets.
2. Broadly we favour fitting reparations into the context of a long term economic policy for Japan which would prevent its revival as a formidable military power but assist the gradual development of better living conditions for the masses and help to entrench a more liberal form of Government. Whenever these objects prove incompatible, the first consideration should prevail.
3. Although new weapons are constantly varying the type of industry needed for war making potential, certain basic types of iron, steel and heavy engineering capacity are likely to constitute the foundation of war industry for a long time hence.
Japanese heavy industry should be reduced to the point necessary for domestic purposes only. Japan should not be permitted to retain any capacity for export which could become a reserve of war potential. All plant in excess of this minimum should be removed by the Allies as reparations. In particular, the aircraft industry should be abolished and ship-building limited.
4. As far as possible, without the permanent depression of living standards to the point of misery and sustained political unrest, Japan could reasonably be forced to pay some reparations out of current production for the benefit of areas devastated by the Pacific War which would otherwise be unable to obtain such goods because of the lack of purchasing power. Reparations of this character which would impinge on world trade and alter competitive conditions amongst the advanced commercial countries should be rigidly excluded. Care will also have to be exercised to ensure that reparations of this kind are directed strictly towards relief and rehabilitation.
5. Reparations in the form of capital equipment should be removed rapidly as soon as an assessment has been made after which requisitions should cease and plans be laid for the future. As far as possible, future control of Japanese economic life should be exercised indirectly through her overseas trade. This would be more economical than most methods and less burdensome to the Allies, but effective because of her dependence on imports. It would also arouse less long term resentment.
6. Shipping will be a crucial factor. It is vital to Japan for purposes of peace and war owing to her limited natural resources.
While it would be nonsensical to deprive a maritime nation of its livelihood we think a strict control should be exercised for many years and that Japanese Mercantile Marine should be kept well below its pre-war size.
We are interested in ships as reparations but lack the essential information on Japanese tonnage remaining, in relation to her essential needs, to form any accurate judgement.
7. Reparations should be apportioned according to the war effort of the Allied Countries which can be attributed directly to the war against Japan as measured by casualties and man-hours expended in the services and in war industry. Definitions of war industry should be mutually agreed upon.
8. The specific character of reparations must await fuller information on availability but we are closely interested in the following items:-
(a) Knowledge of all Japanese scientific and industrial technique, processes and patents. We shall desire to send missions of scientists, technicians, experts and industrialists to inquire into such matters on the spot and to elicit whatever information is deemed desirable.
(b) Shipping, auto-plants, machine tools, aircraft and aircraft factories, textile looms and scientific instruments.
(c) C.S.I.R. are particularly interested in three cyclotrons for nuclear research, two 40 inch and one 60 inch (especially the latter) situated in Tokyo and Osaka. As several exist already in U.K. and U.S. our claim to them should be strongly emphasized.
(d) Japanese assets in territory controlled by the Australian Government.